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Research Highlights 2009: Environment and Energy

The research program on environment and energy addresses how economically efficient and environmentally sustainable use of natural and environmental resources contribute to economic growth and poverty reduction. Development issues facing World Bank clients include energy development, environmental quality, water availability, urban transportation, and land use. Concerns about climate change cut across all these issues.

Themes

The research program on environment and energy is relevant to operational areas of the World Bank in environmental quality, energy markets, climate change, urban infrastructure, regional development, and water resources management.

Energy is both a key factor in economic development and a central focus in addressing the environment and climate change. Current research in energy and environment examines the economics of renewable energy and energy efficiency, policies for reducing pollution and congestion in urban transportation, indoor air quality and biomass fuels, and improved efficiency in public utility regulation.

The effects of climate change on sea level, storm surges, and precipitation have significant implications for a wide range of investment and policy decisions, including coastal development and integrated river basin management. In turn, energy-sector and related infrastructure investments such as roads have significant implications for future greenhouse gas emissions, and mechanisms such as international markets for greenhouse gas emission-reduction credits affect prospects for accelerated economic growth in developing countries while also limiting total emissions.

Ongoing research on urban and regional development provides empirical evidence on the role of infrastructure in stimulating economic development, and how that role can be strengthened for accomplishing more rapid and inclusive economic progress. An important component of that work is assessing impacts of inter-regional transport improvements on trade flows and economic performance.

Ocean warming from climate change will intensify cyclone activity and heighten storm surges. Knowing where significant coastal damage may occur will help countries and the international community target efforts to soften the blow of storm-related losses. An analysis of the vulnerability of coastlines based on a variety of Geographic Information System data suggests that the most vulnerable coastal cities are located in Bangladesh, Morocco, Mozambique, the Philippines, and Vietnam. In a number of countries, more than 50 percent of coastal urban areas lie within potential impact zones. Coastal agriculture in El Salvador, Equatorial Guinea, Ghana, Guyana, Nigeria, North Korea, and Togo also faces particular risks. The coastal areas most prone to storm damage in Djibouti, El Salvador, Ghana, Mozambique, Morocco, Philippines, Togo, and Yemen account for more than 50 percent of GDP.1

The macroeconomic implications of “green” measures for lower-income countries are mixed

Green stimulus—environmentally friendly measures to boost short-term economic activity through government spending or tax breaks—is often touted as providing a triple dividend: rising employment, lasting environmental protection, and higher productivity in the long run. However, there are potential trade-offs between the short-term impact of the programs and measures to enhance long-term growth. That’s because green-stimulus programs that boost employment for the short term are less likely to have a similar impact in the long run, and vice versa. Trade-offs also arise between programs that increase employment of lower-skilled workers and those for higher-skilled ones. Moreover, green investments may require policy and financial support beyond the intended, short-term window, if they are to boost long-term economic growth and sustained employment of higher-skilled workers. The findings reinforce the point that different policy instruments are needed to address different goals for growth.2

Solving urban transportation problems requires a combination of tools

As cities grow throughout the developing world, transport-related problems—traffic congestion, local air pollution, and increased greenhouse gas emission—present both challenges and opportunities. Continued road investments promoting automobile use over public transit systems locks in urban sprawl, and makes it harder to reduce time wasted in traffic congestion and pollution from automobile emissions in the future. Moreover, the price of fuels and the lack of pricing for road access do not reflect the “externalities” of driving. Analysis of the problem in Beijing suggests investments in public transportation in the city center that connect with surrounding areas could reduce average travel times, lower overall carbon dioxide emissions, accommodate more travelers, and reduce air pollution.3

A similar study of externality pricing in México City indicates large potential gains from raising fuel taxes and charging for use of congested roads.4 However, the impact on driving cost would be substantial and implementing road access pricing is complicated in practice.The full social costs of travel in evaluations of alternative transportation infrastructure investments need to be considered when designing policies to promote increased use of mass transit and financing the necessary infrastructure.

Even under the most optimistic scenarios, there is a chance that climate change will induce mega-catastrophes in the distant future. These catastrophes could include drastic melting of ice sheets, disruption of critical global ecosystems, or the cumulative socioeconomic effects of local disasters occurring in rapid succession. Sensible risk-mitigation policies and international cooperation for their implementation is needed, although the general public may misperceive the risks. Various approaches to mitigate catastrophe risk stack up differently in terms of efficacy, cost, robustness, and flexibility. Given the uncertainties, a portfolio of actions is needed to lower the cost of rapidly deploying low-carbon energy technologies, restrict development in vulnerable or environmentally sensitive areas, and better understand how “geo-engineering” processes (deflecting solar radiation) might be used to lessen the impacts of greenhouse gas accumulation.5

Balancing gains from economic density with risk from natural hazards

Today, 370 million people live in cities in earthquake prone areas and 310 million in cities with high probability of tropical cyclones. By 2050, these numbers are likely to more than double as firms seek economic benefits and people seek higher wages in urban areas. Planning for natural disasters in the face such pressure is hampered further by weak land use, rent controls that reduce private incentives to invest in mitigation, and limited basic public services. A cope-mitigate-transfer framework of risk management applied to different types and sizes of cities nicely summarizes the options of doing nothing, investing in brick-and-mortar hazard defense, and doing some form of insurance. The resulting analysis arrives at two obvious conclusions: good hazard management is first and foremost good general urban management, and the public sector can play a vital role in disseminating credible information on urban hazard risk to help people and businesses make better choices on where to live and where to invest, internalize the risk in land and housing markets, and encourage market mechanisms for better risk mitigation and transfer.6